By Patricia Mukhim
No matter what happens to our old notes, how they are shredded and how they are converted to cardboard, ordinary citizens have not lost money. It has been replaced by more colourful currency. Yes, we have lost time and patience at having to queue up to withdraw our own money and this is humiliating. Prime Minister Modi has left the people of this country with no option but to grin and bear. And no, we as citizens don’t have time to join this war on black money. That’s the brief of a Government who, if we recall, was elected on the plank of minimum government, maximum governance. But minimum government today is a farce. We are told how much of our own money to withdraw. Every day new rules emanate from Government and the Reserve Bank of India. Now we will need the Aadhar card for Paytm and other online banking transactions! We don’t really know what we have got ourselves into. And yes, some people with already frail health died while in the ATM queues for which the NDA Government and the BJP in particular will have to answer big time, come election time.
Demonetisation will definitely affect the UP elections. It will also curtail the fun and frolic associated with elections in our own state where bye-elections to the two autonomous district councils are taking place after the passage of the Prevention of Disqualification (Members of Legislative Assembly of Meghalaya) (Amendment) Act, 2015 last year which seeks to put an embargo on holding of dual posts by the MLAs. It remains to be seen how this bye-election plays out – the first since demonetisation.
While the short term impact of demonetisation is immediately visible and it’s not a happy story, we are repeatedly coaxed to wait for the long term impact. The short term impact has hit those in the suburbs and villages the hardest because they don’t know how to make the transition from purely cash transactions to what is now touted as the new “cashless” mantra. Those using words like ‘cashless’ don’t even know what they are talking about. Many people I know don’t yet have bank accounts despite the Jan Dhan adventure. There are those whose accounts have been deactivated for want of documents to prove their identity and who have failed the “Know Your Customer (KYC) test. How will they make their daily transactions? Would anyone like to listen to their stories? Those who claim the villagers are going back to barter are hallucinating. Farmers need to buy soap, oil, and other groceries which they cannot exchange with their produce. How does a butcher exchange groceries with meat? Crazy suggestions! Yet people question your patriotism when you are not exuberant about Mr Modi’s November 8, “surgical strike.”
The short term impact is that tourism has suffered a hit. Tour operators and hotels have reported heavy cancellations. Tourists caught in the November 8, emergency have had a harrowing experience and might think twice about visiting India where legal tender prior to November 8 have become pieces of paper the next day. Tourists carrying old cash have had to struggle to exchange it at banks and queue up at cashless ATMs. A foreigner rightly remarked that demonetisation could make the Indian public lose faith in their currency. But the obverse is also true. There are people who are so paranoid about the rationing out of their own money from ATMs that they now prefer to keep cash at home as they used to do with the old notes.
For the long term impacts we need to hear what Revenue Secretary Hasmukh Adhia
had to say two days ago. He says the government expects the entire money in circulation in the form of currency notes of Rs 500 and Rs 1,000 which have been scrapped to come back to the banking system so that the tax authority can trace the transactions and tax black money hoarders. What does this translate into? It effectively undermines the prospect of any windfall gains accruing to the government arising out of part of the demonetised currency remaining outside the banking system. Soon after the government announced the note cancellation, some experts had projected that part of the demonetised currency notes amounting to Rs 14.17 lakh crore at the end of March 2016, would not return to the banks but a substantial amount has.
An estimated Rs 11 lakh crore has been deposited in banks so far and if the all the high-value notes in circulation comes back to the banking system as the Revenue Secretary indicated, Mr Modi may have to answer to the nation about the cost and impact of the demonetisation exercise spread over 50 days. The Centre for Monitoring the Indian Economy (CMIE), an economic forecasting agency, has put the cost of demonetisation for 50 days from November 8 to Dec 30 at Rs 1,28,000 crore which includes loss of business or sales, cost to households, the expenses for printing fresh currency notes to the government and the RBI and also loss of man hours/days for banks. The onus will be on the government to show that the gains, including the stiff penalties on those found violating rules, negate the cost of the exercise. It remains to be seen how the Government explains this queer phenomenon.
As of December 6, the banks have received Rs 11.55 lakh crore as deposits of the demonetized high currency notes. This works out to 82.5% of the Rs 14 lakh crore that was rendered illegitimate by midnight of November 8 when Prime Minister Narendra Modi announced the demonetisation of Rs 500 and Rs 1,000 bank notes. TheModi Government had calculated that something like Rs 3 lakh crore in bank notes may not come back, thereby wiping out that amount of black money held in cash within the country. But the latest report that 11.55 lakh crore has come back as deposits with the number expected to rise as we get closer to December 30, 2016 is mind boggling. It means that black money has returned into the system through the Jan Dhan account route. This in turn has alerted the Enforcement Directorate to scrutinise those accounts that suddenly became active. So while people try to evade the law, stricter laws are being imposed on ordinary citizens. The discretionary powers of the government have only expanded to touch more aspects of our private lives.
Indeed this living at the edge has taken a toll on all of us even as we deal with new regulations every day. On November 9, we were told that we could not withdraw more than Rs 2,000 from ATMs till November 18 and Rs 4,000 after that. Then on November 13, we were told that the cash withdrawal at ATMs had risen to RS 2,500 per day in the recalibrated ATMs. But many of us could not access that cash especially those of us living in the periphery.
Then we had Finance Minister Arun Jaitley saying that smaller deposits of Rs 1.5-2 lakh in Jan Dhan accounts would not be scrutinised. But on Nov 15 the upper limit for deposits into the same account is reduced to Rs 50,000. On November 18, Government cautioned account holders that they would be prosecuted under the I-T Act for allowing misuse of their bank accounts through deposit of black money in Rs 500/1,000 notes during the 50-day window till December 30. The directive came against the backdrop of reports of misuse of accounts of tribals who don’t pay income tax or the Jan Dhan accounts.
The Government now claims that deposits into Jan Dhan accounts have reduced after it warned people of stern action if the account holders allowed their accounts to be used for converting black money into white. The total amount deposited during November 8-15 were Rs 20,206 crore, while during November 16-22, people deposited Rs 11,347 crore in such accounts. This came down to Rs 4,867 crore during November 23-30 and to Rs 410 crore on December 1 and Rs 389 crore on December 2. Hence the average per account deposit in Jan Dhan accounts so far is Rs 13,113. According to the Central Board for Direct Taxes this is not so alarming given the need to bring all cash to banks. The Income Tax Department has identified the local clusters and bank branches where the inflows of Jan Dhan deposits have been more than normal, in order to investigate deposits belonging to someone else in those accounts.
The sinister part is that some person called me up past midnight December 7 to ask me to write an article against demonetisation and Modi. He claimed to represent the Times of India (ToI) but the only correspondent of that paper in Shillong does not know this person. Quite likely he is someone badly hit by demonetisation and his moves are sinister indeed.
Time will tell what how the demonetisation actually unfolds and whether the gains exceed the losses so far.